Do I need Gap insurance?
Buying Gap insurance is a personal choice and depends on a number of factors, but it can be useful in the following circumstances.
You used a large loan to buy your vehicle
If you have used finance or a personal loan to buy your car, Gap insurance can prove useful, especially if your loan-to-value is high.
As finance deals are normally spread over three to four years, you could be left with a large shortfall if you have an accident or the car is stolen.
You’re concerned about the depreciation of your vehicle
The quicker your car loses its value, the less you will get back from your insurer if you have an accident or your car is stolen. Gap insurance will help make up the difference.
Your car is on a long-term lease
If you have long-term rental agreement for a vehicle with a mileage allowance, a write-off could leave you without a car and a bill for thousands of pounds in outstanding finance. Gap insurance can help protect against this.
You might not need Gap insurance if you car is brand new
Many car insurers will replace a brand new car if it's written off in the first year. If your car has just rolled off the production line, check with your car insurer and finance provider before you look for a Gap provider to see if you would be covered, at least for the first 12 months.
Gap can often only be bought up to a year after the car's purchase, but some policies will allow you to defer their cover over this period, so that you're not over-insuring.
Make sure you read the terms and conditions of both policies carefully before you buy. Also, if the car has been bought using a loan secured on it (such as hire purchase), the insurer will require the finance company's consent before replacing the car. So check with them what their policy is around new car replacements from insurers.
Where can I buy Gap insurance?
Gap insurance is available from a number of different places, but is usually offered to you when you buy a car. However, your dealership may not offer you the best deal, or even the cover that is best suited to your needs.
Insurers, brokers and comparison sites all offer the product directly, so make sure you shop around first.
Whatever policy you choose, grasp the key features before you buy. The following are just some of the important elements you should look out for:
- Length of the policy
- Any significant exclusions
- The value of your vehicle
- How to claim on your policy
- How to cancel your policy if you no longer need it
What are the rules for selling Gap insurance?
The sale of Gap insurance with vehicles has proved controversial and is attracting the attention of the regulator, the Financial Conduct Authority (FCA).
Concerned that dealerships were selling Gap insurance alongside vehicles at a high mark-up without clearly explaining the rules, the FCA introduced a host of new rules which came into force on 1 September 2015.
Dealerships selling Gap insurance must tell you the following before you buy a policy:
- The total premium for the Gap insurance
- The length of the policy
- The features, benefits, unusual exclusions and limitations of the product
- That the product can be bought elsewhere from standalone providers
- Whether Gap insurance is an optional or compulsory add-on to the sale of the vehicle
In addition, dealerships can no longer sell you Gap insurance on the same day they sell you a car.
There must be at least a two-day break, unless you decide to waive the waiting period.
If you do wait two days or longer, the provider should go over the detail of the policy again.
The decision to waive the waiting period must be initiated by you, and can't be suggested by the dealership.